US top court to weigh drugmaker disclosures

WASHINGTON(Reuters) - The U.S. Supreme Court will hear arguments on Monday in a case that could impact how much drugmakers tell investors about health complaints from people who take their medicines.

Manufacturers of prescription drugs, medical devices and dietary supplements are siding with Matrixx Initiatives, maker of over-the-counter cold remedy Zicam, in arguing that broad disclosure would cause confusion and harm rather than help investors or consumers.

The case stems from a class-action lawsuit filed by investors who argued Matrixx violated federal securities law by failing to disclose by early 2004 as many as 23 reports of people losing their sense of smell after using Zicam.

Five years later, more than 130 reports of the same problem prompted U.S. regulators to warn Matrixx to stop selling two intranasal forms of Zicam. Matrixx pulled those versions of Zicam, the company's flagship product, while disputing claims the product was unsafe.

The investors who sued Matrixx argued the company had a duty to disclose the early cases because the information posed a major threat to Matrixx's business.

Attorneys for Matrixx, which is being sold to a private equity firm, said the company was not required to reveal the complaints because they did not provide "statistically significant" evidence that Zicam caused loss of smell. The number of cases was small given the millions of units sold.

A federal judge initially dismissed the lawsuit. But a U.S. appeals court in San Francisco concluded the plaintiffs had shown enough of a case that the suit could go forward. Matrixx appealed to the Supreme Court.

Drugmakers say they could be forced to disclose thousands of meaningless and unreliable reports about their products if the Supreme Court adopts the appeals court stance.

That would cause "investor confusion, unduly burdensome over-disclosure of immaterial information, and the needless proliferation of unfounded concerns among patients and consumers," trade groups for the biotech and pharmaceutical industries wrote in a brief filed with the high court.

The industry groups and Matrixx argue they should only be required to reveal reports when they reach statistical significance, a test used to determine if a problem was caused by a product and not just randomly associated with it. If the court agrees, "it would claw back the number of securities fraud cases that are filed against pharmaceutical companies," said Sarah Wolff, an attorney with law firm Reed Smith.

More than 40 class-action securities fraud suits were filed against pharmaceutical and biotechnology companies in 2008 and 2009, the industry groups said.

The suit against Matrixx was filed in 2004 on behalf of investors who bought shares between Oct. 22, 2003, and Feb. 6, 2004. The Securities and Exchange Commission, seniors lobbying group AARP and some economists have weighed in on the side of the investors.

The Supreme Court is expected to rule on the case by the end of the current term this summer. The case is Matrixx Initiatives v. Siracusano.